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If you’ve been here for awhile, you’ve heard me talk about the market portfolio quite a bit.
Most of the time, I’m using that phrase as shorthand for something pretty simple: a total stock market index fund, maybe paired with a total bond market fund.
If you own a broad U.S. stock index and a core bond fund, it’s natural to feel like you “own the market.” And for a typical retirement portfolio, that’s often close enough.
But when we zoom out and think about asset allocation—questions like, “Should I invest in private equity?” or “How much should I put in real estate, gold, or even crypto?”—that casual definition stops being very helpful.
In that setting, the market portfolio means something much bigger and more specific.
The true market portfolio requires us to add up the total value of every investable asset in the world—every publicly traded stock, every bond, listed real estate, private markets, gold, even crypto. And if you visualize a simple pie chart where each asset gets a slice of the pie that matches its share of the total value, that’s how you arrive at the market-cap weighting that asset allocators like myself think about when making decisions related to portfolio construction.
I was recently told that I’m incorrectly assuming that everyone knows what market-cap weighting means, so really quickly…the market cap of a stock is just its share price times the number of shares. For an asset class, like U.S. stocks, you add up the market caps of all the companies in that market. If U.S. stocks make up about a third of the total value of global investable assets, then they get roughly a one-third weight in the market portfolio. If crypto is about one percent of that global pie, it gets about a one-percent weight.
In past episodes, I’ve said that when you’re thinking about adding something beyond public stocks and bonds, a good starting question is: “What is this asset’s weight in the global market portfolio?”
If an asset class is one or two percent of the world, and you’re thinking about making it twenty percent of your portfolio, that doesn’t automatically make it wrong—but it should make you pause. It’s a way to gauge how far you’re stepping away from the market portfolio.
Recently I came across a research paper from Goldman Sachs that takes the idea of the world portfolio and really fleshes it out. They look at what the global market portfolio holds today, how it has changed over time, and how it compares with simple portfolios like a 60/40 mix of stocks and bonds.
So here’s where we’re headed in this episode:
- First, I’ll walk through what the investable world portfolio looks like today—the real pie chart of global assets.
- Then we’ll look at how that picture has shifted over time, and why the “market portfolio” that classic investing books had in mind isn’t the same as today’s version.
- And finally, we’ll talk about how to use this information when you’re making decisions about things like international stocks, alternatives, or sticking with a simple stock-and-bond mix.
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What the World Portfolio Looks Like Today
Goldman Sachs estimates that if you add up the value of all the investable assets in the world—stocks, bonds, listed real estate, private markets, gold, crypto—you end up somewhere around two hundred and sixty trillion dollars.
The largest piece of the market portfolio belongs to U.S. stocks—it’s about one-third of the pie. For what it’s worth, the S&P 500 represents about 80% of the U.S. stock market, so that’s a pretty large chunk of the market portfolio on its own.
The next big slice is stocks outside the U.S. It’s a bit smaller—just under a fifth of the total. That includes developed markets like Europe and Japan, and emerging markets like India or Brazil.
Then you have bonds. If you combine U.S. bonds and bonds issued outside the U.S., they add up to around forty percent of the world portfolio. That’s government bonds, corporate bonds, and other types of tradable debt.
So if you stopped right there and only looked at public stocks and bonds, you’d already have most of the global portfolio covered.
After that, you move into what most people think of as “alternatives.”
There’s a mid–single-digit slice of gold. There’s a small slice of listed real estate, like REITs. There’s another small slice for private markets—private equity, private credit, and similar vehicles. And then, out on the edge of the pie, there’s a sliver for crypto, roughly one percent.
The picture I want in your head is:
- 86% of the market portfolio is public stocks and bonds
- A noticeably large share of that equity exposure in the U.S. (64% of equities or 31% of the overall pie)
- Thin wedges for gold (6%), real estate (2%), private markets (5%), and crypto (1%)
Does the Market Portfolio “Win”? The 60/40 Comparison
Right away, one thing jumps out at me right away:
Most of the world’s investable money is still in plain, public markets. For all the headlines about private equity or crypto, those markets are still small compared with global stock and bond markets.
So if you’re thinking about putting 20% of your money into a private or alternative investments or 10% into gold or 5% into crypto, you’re making a major deviation from the market portfolio.
The Goldman research piece compares the world portfolio—this big, diversified mix of every investable asset—to a basic 60/40 portfolio of global stocks and global bonds on a risk-adjusted basis and finds the simple portfolio to be superior.
Risk-adjusted returns simply mean: for the amount of up-and-down movement you lived through, did you get enough return in exchange? If two portfolios earn similar long-run returns but one is much bumpier, the smoother one is better on a risk-adjusted basis. It gave you more return per unit of stress. It also leads to better compounding of your wealth.
So why can a plain 60/40 look better than “owning everything”?
One reason is that the world portfolio includes assets that haven’t consistently earned their keep. Think about gold, certain pockets of private markets, and other real assets that can be useful in specific environments but haven’t delivered strong, steady long-term returns relative to their volatility. When they spike, their slice of the pie grows; when they slump, it shrinks. There’s no deliberate rebalancing across those pieces.
A 60/40 portfolio does rebalance. When stocks run ahead, you trim them. When bonds lag, you add to them. That simple discipline has historically smoothed the ride and, in some periods, boosted risk-adjusted returns.
The world portfolio is also extremely diversified. But beyond a certain point, adding tiny slices of everything doesn’t help much. Some assets just don’t contribute enough return to justify the extra complexity and noise they bring.
None of this makes the world portfolio irrelevant. It’s still a very helpful reference point. It shows you the actual global opportunity set and where the money really is—what’s big, what’s small, and what sits on the fringes.
But it’s not a prescription.
Just because an asset is owned by enough of the world that it shows up in a market portfolio pie chart doesn’t mean it deserves a big spot in yours. And if something is a tiny slice globally, you can still choose to overweight it—but at least you’ll know how far you’re stretching.
A clean, rebalanced 60/40 stock-and-bond portfolio has held up remarkably well over time—often better, on a risk-adjusted basis, than the “own-everything” world portfolio itself. That’s not an argument that everyone must be 60/40. It’s an argument for starting with a straightforward, low-cost stock-and-bond core, and then being deliberate when you step away from it.
The U.S. vs. The Rest of the World
The second thing that stands out to me looking at the global market portfolio is the dominance of the United States—something we’ve talked about in the past on the show.
If you look back at that global pie chart, the U.S. equity market isn’t just the biggest slice—on its own, it’s roughly two-thirds of global stock market value, more than all other stock markets combined. Add in U.S. bonds and the American share of the overall world portfolio gets even larger.
How did we get here?
A big part of the story is profitability. Over the past decade or more, U.S. companies—especially large technology and platform businesses—have out-earned much of the rest of the world. Stronger profits support higher valuations, and higher valuations translate into a bigger share of the global market cap.
Market structure matters, too. U.S. markets are deep and liquid. If you’re a global investor looking for innovation, rule of law, and functioning capital markets, the U.S. is an obvious place to allocate money. Over time, that preference shows up in the size of the U.S. slice.
That explains the past. The question that matters to you is: what does this dominance mean going forward?
One place to look is valuations. Many broad U.S. equity indexes today trade at forward price-to-earnings ratios in the low 20s, while broad international markets sit closer to the mid-teens. That doesn’t tell you what will happen next year, but it does tell you the U.S. is priced for higher expectations. Historically, paying more means you should expect a bit less from future returns, and paying less means you don’t need as much growth to have a decent outcome.
There’s also concentration risk. When one country dominates your equity exposure the way the U.S. does, you’re tying a lot of your financial future to a single economic system, a single policy regime, and a relatively narrow group of mega-cap companies. You’re diversified within the U.S., but not necessarily across the world.
This isn’t a case for dumping U.S. stocks. It is a case for not letting your portfolio turn into an all-U.S. bet by accident.
If every equity fund you own has “U.S.” in the name, you’re effectively saying, “I think the next decade will look a lot like the last one.” Maybe it will. Maybe it won’t. Either way, that’s a big statement to make without meaning to.
From a valuation, diversification, and risk-management perspective, there’s a strong argument for owning a real slice of non-U.S. stocks—not a token amount that disappears on your statement, but something you can point to and say, “If leadership broadens out, this will actually move the needle.”
How the Market Portfolio Has Changed Over Time
One last thing that I want to point out about the Goldman Sachs report is that they rebuild what the portfolio would have looked like in earlier decades, so you can see how different eras reshaped the mix of global assets.
They build a 1950-onward version with just global stocks, bonds, and gold, and a 1990-onward version that adds things like listed real estate, credit, private markets, and eventually crypto.
When classic investing books talk about “the market portfolio,” they’re talking about that earlier world—a portfolio made almost entirely of public stocks and bonds, with far fewer moving parts than we have today. No crypto. A much smaller private markets industry. Less sovereign debt. None of the alternative categories that now get so much attention.
I think the theory from that era still holds; but I do feel that it’s worth noting how the ingredients changed. I think the biggest implication for me, personally, is my view point how we define the best type of investments.
What Should You Actually Do With This?
So what should you actually do with your own portfolio?
You don’t have to own everything to be well diversified. The world portfolio shows you what exists and how big each piece is. Your job is to build something you can actually live with.
For most investors, a very solid starting point is a simple global stock-and-bond core.
In practice, that might be one low-cost fund that tracks a global stock index—U.S. and international together—and one low-cost fund that tracks a global bond index, or a mix of U.S. and high-quality international bonds. From there, you can dial the split between stocks and bonds up or down based on your age, risk tolerance, and spending needs. Maybe you’re 60/40. Maybe you’re 70/30. Maybe you’re 40/60 if you’re closer to retirement. The exact numbers matter less than picking a mix that fits and sticking with it.
That kind of portfolio already lines up pretty well with the main lesson from the Goldman research: a clean, rebalanced stock-and-bond mix has held up very well over time.
The world portfolio comes in as a reality check, not a rulebook.
When you think about adding something beyond public stocks and bonds, ask yourself two questions:
- What’s its rough weight in the global market portfolio?
- How far am I planning to deviate from that, and why?
If crypto is roughly one percent of the world portfolio and you’re tempted to make it ten percent of your portfolio—or if private markets are a small wedge globally and you’re eyeing a 20% allocation—that doesn’t automatically make it wrong, but it should give you pause. You’re making a very different choice than the world as a whole, and you want a reason that’s grounded in evidence.
The same logic applies to other alternatives. In the world portfolio, things like listed real estate, gold, and niche real-asset strategies are small slices, not giant blocks. A simple guideline is:
Treat alternatives as supporting players around the edges of a strong core, not the star of the show.
If you want a bit of listed real estate for inflation sensitivity, or a small sleeve of gold, or a modest allocation to a diversified alternatives fund, that can be reasonable. But those pieces should live at the margins of your portfolio, not in the center.
Everything we’ve talked about assumes you can pick a reasonable allocation and stay with it through different market environments. That’s one of the biggest advantages of a simple global stock-and-bond core: it’s understandable. You can explain it to yourself. You can explain it to your spouse. And when markets get loud, you can remind each other why you own what you own.
The world portfolio helps as a backdrop. It reminds you that public stocks and bonds are still the main event, that the U.S. isn’t the whole world, and that alternatives are smaller than the marketing would have you believe.
From there, your job is not to fine-tune every slice. Your job is to build something simple, diversified, and affordable that you can stick with for a very long time.
Next Episode: Factors vs. Indexes
My goal today wasn’t to turn you into a world-portfolio purist. It was to give you a reference point—so you can see how big public markets really are, how dominant the U.S. has become, and how far you’re stretching when you load up on things like private markets, gold, or crypto.
Now I mentioned how classic investment theory still holds despite changes to the global market portfolio, but next week I want to think a bit more about this question:
If the cap-weighted market portfolio is the baseline, what does it mean to step away from it on purpose?
To me, that’s where factor investing comes in.
In the next episode, I’m going to talk about the difference between index investing—owning the market portfolio as it’s defined by market caps—and factor investing, where you use rules to tilt your portfolio toward things like other than market cap alone.
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